Don't Overlook Advice for Your 401(k)s and IRAs

One sign that saving on auto-pilot may be helping Americans build their retirement funds: ownership in 401(k) plans continues to grow, while the percentage of investors owning an IRA plan is falling, according to a new report.

Having regular contributions directly deposited into a 401(k) or employer-sponsored retirement plan with a select group of investment choices may be easier for many Americans than setting up and figuring out investments on your own for an IRA.Market volatility may also prevent some investors from taking the initiative to open and fund their own individual retirement account when workplace 401(k)plansare already in place.

Whatever the rationale, the fact remains that among families participating in a retirement plan, 82 percent owned a 401(k) type plan in 2010 — a 50 percent gain in eight years, according to the Employee Benefit Research Institute, EBRI. Meanwhile, only 28 percent of families owned an IRA or Keogh retirement plan (for the self-employed) in 2010 —a nearly 3 percent decline in 3 years from 30.6 in 2007, before the global financial crisis.

“Americans lost a tremendous amount of wealth between 2007 and 2010,” said Craig Copeland, an EBRI researcher who authored the report. Yet the percentage of family heads who were eligible to participate in a defined contribution plan and actually did so remained virtually unchanged during this time.

Many companies with 401(k) plans already offer educational seminars to explain the investments offered in the employer-sponsored plan. Going to forums offered by your employer or using web tools can be helpful. You can also see how your company’s 401(k) compares to other firms and find out what are some of the top investment choices in the plan by going to www.brightscope.com.

“A comprehensive financial adviser should be looking at all of your accounts,” including a 401(k), said Peggy Cabaniss, a certified financial planner at California-based HC Financial Advisors and past chair of the National Association of Personal Financial Advisers.

Make sure you ask the adviser to look over all of your accounts or at least inform the adviser of the balances in the accounts that you own.

“A lot of times clients don’t know they should ask their adviser to review it,” Cabaniss said. “We may not charge for (401(k) advice), but at least we'll review it once a year and make sure your 401(k) is invested in the best way possible given the limited choices the company offers.”

Diversification is still key. If you’re risk averse, you may not be taking on enough risk with your assets — and that’s one reason why you may need financial advice.

“How diversified are you in different sectors? How much homework are you willing to do and how much time are you willing to spend on it?” said Lori Schock, director of the office for investor education and advocacy at the Securities and Exchange Commission.

These are some of the key questions to ask yourself, said Schock. “If you're not willing to do this, it may be worth having a financial professional at least give you a check up every three years or so.”

Just make sure you don’t overpay for the advice.

“If you're just dealing with a 401(k), I would look for an adviser who would charge me hourly or a one time fee,” said Schock. “You don’t want to pay an exorbitant amount for stock picking advice, when there are only 10 mutual funds to choose from in the 401(k) plan.”